Tesla CEO Elon Musk testified this morning in a shareholder lawsuit that examined the massive compensation package that made him the richest person in the world.
Tesla is being sued by prosecutor Richard J. Tornetta, who says the company was wrong in awarding Musk his compensation package in 2018, which was approved by shareholders at the time. At the time, Tesla said it could be worth nearly $56 billion, and its net worth today is $50.9 billion.
Musk took the stand shortly after 9 a.m. at the Delaware Court of Chancery in Wilmington. ”, or leave the company.
Musk began the day with questioning by his attorney and a plaintiff’s attorney, where they asked him about Tesla’s board and his time spent with the company, as well as his relationship with the board, which is supposed to be independent of Musk and represent shareholders. Musk acknowledged his friendship with board members, including some shared family vacations. During questioning, Musk defended himself by saying he was upholding his duty to increase Tesla’s market value, but admitted that he sometimes does not seek board approval for public statements.
The lawsuit alleges that Musk’s massive compensation package was an unjust enrichment, alleging that the board failed in its legal duty to act in the best interests of Tesla shareholders. The suit describes Musk as a “part-time CEO” as he heads other ventures. One of the points of contention in the case is whether Tesla’s board is really independent of Musk and represents shareholders, or whether he had improper influence on the board to grant him such a huge payday.
Musk himself controls more than 20% of all outstanding Tesla stock, including unexercised options.
Musk initially denied Thursday that he had essentially negotiated with himself how many shares he would receive in the compensation package. (Negotiating against itself would essentially give Musk complete control over the outcome and raise big questions about governance and whether it is living up to its fiduciary responsibilities.)
But the prosecution’s attorney, Gregory Varallo, then played back part of Musk’s statement where he said at one point about the pay package, “I think I was negotiating with myself.”
Musk then acknowledged that he had said this. It was one of many times Varallo seemed to highlight inconsistencies in Musk’s statements, current and former.
Less than three minutes into the questioning, Musk said he believed there had been consultations with the board of directors before changing his title to “Technoking.”
Varallo then played back Musk’s statement in which Musk said he had not consulted the board about the title change.
Musk had also said in his statement, which was repeated in court on Wednesday, that he was the person who came up with the vision for Tesla.
But in court on Wednesday, Musk struck a different tone, objecting to the question in a yes-no format.
“I believe you are asking complex questions where yes or no is not possible. Yes is more accurate than no,” Musk said Wednesday. “But your question is a complex one that is often used to mislead people.”
Varallo emphasized the degree of control Musk has over Tesla.
Musk said he was not seeking approval when he recently announced a potential share buyback. He also said he was not seeking approval by stating that he saw a path to Tesla becoming worth more than Apple and Saudi Aramco, the two most valuable companies in the world.
Attorneys for the prosecution this week described the package as close to the gross domestic product of the entire state of Delaware, and much more expensive than building the World Trade Center. They also compared Musk’s compensation to the average Tesla salary, which they said is $40,000.
While the lawsuit is focused on Musk’s damages, plaintiffs’ attorneys asked a wide variety of questions about his governance of Tesla. Musk protested a question about when he tweets about Tesla.
“We’re cross-examining an interesting case, Mr. Musk,” Varallo fired back. “So if your lawyer wants to object, he has the right to do so, but unfortunately you don’t. I suspect he will if he doesn’t like the question.’
The exchange led Musk to repeat his criticism of the SEC.
“The consent decree was made under duress,” Musk claimed on Wednesdayciting a 2018 settlement with the SEC over Musk’s claims that he had “secured funding” to take Tesla private at $420 per share. “A contract concluded under duress is not a legal basis.”
At a TED conference earlier this year, Musk said he only agreed to a settlement because if he continued to fight the SEC, Tesla’s banks would have cut funding at a time when it needed money. “I was forced [to lie] to save Tesla’s life and that’s the only reason,” Musk said at the April event.
Varallo then asked if Musk had any legal training. Musk described some familiarity.
“If you’re in enough lawsuits, you pick up a few things along the way,” Musk said.
Tesla executives have so far defended Musk’s pay package in two days of testimony.
“It was about motivating him to achieve things that were daring and daring and he put his time and energy into that as opposed to his other interests,” Tesla CEO Robyn Denholm testified Tuesday. Musk was interested in funding interplanetary travel, she said. In addition to Tesla, Musk is also the CEO of SpaceX and owner of Twitter, and he also heads the Boring Company, which specializes in underground tunneling, and is the founder of Neuralink, which is trying to put computer chips in people’s brains.
Musk’s compensation package goals have been characterized as lofty and incredibly difficult to achieve.
Former Tesla Chief Financial Officer Deepak Ahuja described the plan as “extremely high risk, high reward”.
“While I deeply believe in Tesla, I felt the difficulty of these milestones was so high that for a mere mortal like me I didn’t find this to be an appealing stimulus plan on a personal level,” said Ahuja.
Musk urged shareholders to approve the plan, warning he was “deeply offended” by a lack of support and that those who opposed it would not be welcome at any of his companies, according to emails posted in the court were read by the plaintiff’s lawyers.
Chris Isidore contributed to this story.